Effect of Advertising

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I’ve re­cently had sev­eral con­ver­sa­tions around whether ad­ver­tis­ing is harm­ful, and speci­fi­cally whether ads pri­mar­ily work by trick­ing peo­ple into pur­chas­ing things they don’t need. One way to think about this is, what would the world would be like if we didn’t al­low ad­ver­tis­ing? No in­ter­net ads, TV ads, mag­a­z­ine ads, af­fili­ate links, spon­sored posts, product place­ment, ev­ery­thing. Let’s also as­sume that en­force­ment is perfect, though of course edge cases would be very tricky. Here’s my spec­u­la­tion about how this would change peo­ple’s pur­chas­ing:

  • Prod­ucts would be a lot stick­ier. A lot of ad­ver­tis­ing tries to move peo­ple be­tween com­peti­tors. Some­times it’s an ex­plicit “here’s a way we’re bet­ter” (ex: we don’t charge late fees), other times it’s a more gen­eral “you should think pos­i­tively of our com­pany” (ex: we agree with you on poli­ti­cal is­sue Y). Ban­ning ads would prob­a­bly mean higher prices (Ben­ham 2013) since it would be harder to com­pete on price.

  • Re­lat­edly, it would be much harder to get many new prod­ucts started. Say a startup makes a new credit card that keeps your pur­chase his­tory pri­vate: right now a straight­for­ward mar­ket­ing ap­proach would be (a) show that other credit cards are do­ing some­thing their tar­get au­di­ence doesn’t like, (b) build on the au­di­ence’s sense that this isn’t ok, and (c) pre­sent the new card as a solu­tion. Without ads they would likely still see up­take among peo­ple who were aware of the prob­lem and ac­tively look­ing for a solu­tion, but mostly peo­ple would just stick with the well-known cards.

  • A ma­jor way ads work is by build­ing brand as­so­ci­a­tions: peo­ple who eat Pow­der­milk Bis­cuits are prob­a­bly Nor­we­gian bach­e­lor farm­ers, listen to pub­lic ra­dio, or want to sig­nal some­thing along those lines. Branded prod­ucts both provide some­thing of a ser­vice, by mak­ing more ways to sig­nal iden­tity, and charge for it, by be­ing more ex­pen­sive to pay for clever ad cam­paigns. Without ads we would prob­a­bly still have these as­so­ci­a­tions, how­ever, and prod­ucts that hap­pened to be as­so­ci­ated with cov­eted iden­tities would still have this role. The way these as­so­ci­a­tions would de­velop would be less di­rected, though brands would prob­a­bly still try pretty hard to in­fluence them even with­out ads. You can also choose to sig­nal the “fru­gal” iden­tity, which lets you avoid the brand tax.

  • Re­view­ers would be much more trust­wor­thy. There’s a long his­tory of re­view­ers get­ting ‘cap­tured’ by the in­dus­try they re­view.

  • Pur­chases of things peo­ple hadn’t tried be­fore would de­crease, both things that peo­ple were in ret­ro­spect happy to have bought and things they were not. One of the roles of ad­ver­tis­ing is to let peo­ple know about things that, if they knew about them they would want to buy. But “buy stuff they don’t need” isn’t a great gloss for this, since af­ter buy­ing the prod­ucts peo­ple of­ten like them a lot. On the other hand I do think this ap­plies to chil­dren, and one of the things peo­ple learn as they grow up is how to in­ter­pret ads. Which is also why we have reg­u­la­tions on ads di­rected at kids.

Don’t put too much stock in this: I work on the tech­ni­cal side of ads and don’t have a great view into their so­cial role, and even if I was in a role like that it would still be very hard to pre­dict how the world would be differ­ent with such a large change. But broad “we’d see more of X and less of Y” anal­y­sis gives a way to ex­plore the ques­tion, and I’m cu­ri­ous what other peo­ple’s im­pres­sions are.

(Dis­clo­sure: I work in ads but am speak­ing only for my­self. I may be bi­ased, though if I thought my work was net nega­tive I wouldn’t do it.)

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